Coffee Industry Analysis

Topics: Coffee, Customer service, Starbucks Pages: 8 (2313 words) Published: February 5, 2014

Grinder’s Coffee Shop and the Coffee Industry

Primary Company:

Grinders Café

Competitors:

1-Italian Gourmet Market
2-Starbucks
3-Port City Java
4-Dunkin Donuts

1. The Coffee Shop Industry Analysis:

Threat of New Entrants:
The coffee industry is one of the world’s largest commodities, produced in over 70 countries and employing nearly 20 million people. The United States accounts for approximately 20,000 coffee shop businesses with revenues totaling $10 billion in 2011 and on an upward trend, according to the Small Business Development Center (SBDC). Industry analysis, conducted in 2012, found the coffee industry to be controlled by the top 50 companies, which account for 70% of the sales. The remaining 30% of sales are distributed among mom-and-pop coffee shops and coffee retailers such as grocery chains, convenience stores, and restaurants. There are few barriers to entry, but the industry remains highly competitive and concentrated among industry giants. However, despite the 70% franchise control on the industry, there are opportunities for new firms emphasizing on the specialty coffee market and “on-the-go” Americans. Startup cost for a small coffee shop can be as little as $20,100 with a growing opportunity to partner with large franchise firms such as book stores, shopping centers, food venders, and housing communities.

Inter-firm Rivalry:
The U.S. National Coffee Drinking Trends 2013 report concluded coffee consumption increased by 5% from 2012 to 2013 with 83% of Americans acknowledging they consume coffee on a daily basis. Hispanic Americans were found to consume Espresso-based beverages at twice the rate of other groups on a daily basis. Owners of coffee shops, understood to be “single cup brewers,” increased by 12% in 2013, increasing competition in the already highly competitive industry. Researches also reported a strong increase in consumer demand for specialty coffee drinks such as cappuccinos, lattes, Americanos and Macchiatos. The increasing demand for gourmet coffee and a customer centric corporate culture offers opportunities for small retailers to make a sustainable profit in local communities. Starbucks lead the way with over 16,680 stores worldwide; and Caribou Coffee a distant second, with nearly 500 corporate owned stores and over 100 franchised outlets.

Bargaining Power of Buyers:
Local demographics and trends in the market are essential to the success of any coffee shop. When researching the U.S. market, the National Coffee Drinking Study conducted by the SBDC found 76% of adults who drink coffee began a lifelong habit between the ages of 13 and 24. Currently, 40% of adults age 18-24 consume coffee of a daily basis, which is up from 31% in 2010. When accessing adults age 25-39 researchers found 54% to consume coffee on a daily basis, also on a steady upward trend from 44% in 2010. Coffee shop owners, to successfully reach target markets, primarily target high school, college and newly employed age groups. According to the SBDC, “the labor intensive nature of the coffee shop business places a premium on friendly, high energy teams which generate about $50,000 in annual revenue per worker. “ The highly competitive industry requires coffee retailers to attract a high quality employee and offer specialty products in order to successfully generate returning customers.

Bargaining Power of Suppliers:
The coffee industry continues to rise despite the recent economic downturn that negatively affected a large percentage of the American customer base. The growing demand of commodity coffee resulted in a premium pricing strategy by suppliers. The average price of coffee has increased by 25% to consumers since 2007 due to the price increase by manufacturers and distributors. The rise in coffee prices peaked in 2011 and is beginning to level just under $5. The demand for specialty coffee forces coffee growers to be selective of growing conditions. An unpredictable...
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